Cadila Healthcare Ltd’s shares fell by 1.1% on Tuesday, in comparison with a 1.1% rise in the broad market, and a 1.6% rise in the BSE Healthcare index on the Bombay Stock Exchange.
Although its profits were in line with consensus estimates, it seems investors expected more. Also, investors seem to be keenly watching out for the impact of a key product which is going off-patent in the US, since this will affect performance in future quarters. Sales rose by 17.5% to Rs1,134 crore in the December quarter over the year-ago period.
Revenue from its domestic formulations business rose by 17%, and exports by 20%.
Sales in the US and Brazil rose by 33% each, and by 22% in Japan. Sales to emerging markets rose 17% and would have been higher but for an underperformance in South Africa, where it had issues with certain product supplies, and expected approvals to launch some products did not come through. Its growth in most markets has been supported by new products. For example, it launched four products in the US and two in Japan. It introduced nine drugs in the domestic market.
The company also has a listed subsidiary, Zydus Wellness Ltd, which markets brands such as Ever Yuth, Nutralite and Sugar Free. This subsidiary did well, too, with sales rising 21% and net profit 37%.
In the December quarter, Cadila’s material consumption rose nearly 18%, while employee costs and other expenditure grew by much lower levels. As a result, despite material costs rising faster than revenue, its operating profit margin rose by about 80 basis points (bps) to 22%. One basis point is one-hundredth of a percentage point. Lower interest costs, slightly higher income and flat depreciation contributed to its profit after tax rising 25% to Rs170 crore.
In the current quarter, the effect of pantoprazole going off-patent in the US will become visible on its financials. Its joint venture Zydus Nycomed supplies this product to the innovator firm and will see lower revenue as a result.
In April-December, Cadila’s share from this venture was Rs46 crore of sales and Rs23 crore in profit. But it will also start supplying raw materials for this product in due course.
Another joint venture, Zydus Hospira, which sells oncology injectables, earned Cadila Rs82 crore and a profit of Rs36 crore. Its contribution is expected to increase due to growth from new products. Fiscal 2012 will also see its out-licensing deal with Abbott Laboratories to sell 24 products in 15 emerging markets begin to earn revenue.
Thus, Cadila appears to have prepared the ground to sustain its growth momentum in the longer term. But in times such as this, the short term appears to prey more on the mind of investors.
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